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- 09 Nov 2022
- ICICIdirect Research
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VST INDUSTRIES’ Q2FY23 RESULTS AHEAD OF OUR ESTIMATE ON REVENUE FRONT
VSTIND - 335 Change: 2.30 (0.69 %)News:
VST Industries’ Q2FY23 results were ahead of our estimate on the revenue front but below our estimate on the operating profit front. Revenue witnessed growth of 26.6% to Rs 344 crore) led by strong tobacco exports. The company clocked tobacco sales of Rs108 crore during the quarter against Rs 37 crore in the corresponding quarter. Cigarette sales were up 2.3% led by 8% volume growth. Trade promotions increased during the quarter. Gross margins contracted by 11 percentage points, mainly on account of higher volumes of low margin tobacco business & increase in trade promotions. Tobacco business gross margin is ~13% whereas cigarette business gross margin in ~45%. Other income increased sharply from Rs10.2 crore to Rs33 crore mainly on account of write back of Rs17.5 crore tax liability due to settlement of luxury tax dispute with the Telangana government under amnesty scheme. This resulted in net profit growth of 15.4% to Rs 92.2 crore
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Though VST has seen 8% cigarettes volume growth in Q2, it is still below pre-Covid-19 level. The company is losing market share in last one year given Rs 10 price point cigarettes are gaining very strong traction. Given, VST only recently launched variant of brand ‘Total’ at Rs10 / stick price point, it has not been able to take advantage of that consumption trend. Moreover, stable taxation and crackdown of illicit cigarettes has resulted in industry gaining market share from illicit cigarettes. VST has been increasing its spends at point of sale branding, trade promotions as well as consumer promotions to gain volumes. It has also started focusing on higher price points cigarettes by launching ‘Total K3’ in slim format in core markets. We believe all these efforts could result in re-gaining volumes specifically from illicit cigarettes
Impact:
Neutral